According to a PTI report, the wait for the mega initial public offering (IPO) of LIC may become longer as the ongoing Russia-Ukraine war has had an impact on global stock markets, including the Sensex and Nifty.
While no official announcement has been made, Finance Minister Nirmala Sitharaman has already indicated that the LIC’s IPO launch date will be reconsidered in light of the evolving geopolitical situation. The LIC’s initial public offering (IPO) was scheduled to take place in March.
WHY MAY THE GOVERNMENT WAIT?
The central government may postpone the mega IPO of the country’s national insurer in order to maximize the value of its stake in the state-owned insurance behemoth.
It’s now a full-fledged war, so the government will have to assess the situation before proceeding with the LIC IPO.
SENTIMENTS OF INVESTORS ARE IMPORTANT
Following the market jolt caused by Russia’s invasion of Ukraine, bankers advising LIC on its IPO have pushed the government to postpone the stock offering’s launch.
Two bankers familiar with the discussions said the investment banks on the deal were piling pressure on the government and raised concerns in a recent closed-door meeting to postpone the IPO, citing market volatility caused by Russia-Ukraine tensions.
According to one of the bankers directly involved in the negotiations, the bankers have told the Indian government that launching LIC’s stock offering would make sense in the coming months when investors are more confident.
WHY IS THE LIC IPO LAUNCH IN MARCH IMPORTANT?
The government is expected to raise Rs 63,000 crore by selling a 5% stake in the life insurance company in order to meet the current fiscal’s disinvestment target of Rs 78,000 crore.
If the initial public offering (IPO) is postponed until the following fiscal year, the government will fall far short of the revised disinvestment target.
This fiscal, the government has raised Rs 12,030 crore through CPSE divestiture and Air India’s strategic sale.
The government had previously estimated that disinvestment would generate Rs 1.75 lakh in 2021-22.
INDIA’S LARGEST IPO
The LIC public offering would be the largest IPO in Indian stock market history. Once listed, LIC’s market capitalization would be comparable to that of top companies such as RIL and TCS.
So far, the amount raised from Paytm’s IPO in 2021 has been the highest in history, at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Last week, the government allowed up to 20% FDI under the automatic route in IPO-bound LIC, with the goal of facilitating the country’s largest insurer’s disinvestment.
The Union Cabinet, chaired by Prime Minister Narendra Modi, made the decision in this regard.
DETAILS ON THE LIC IPO
- The IPO is an offer for sale (OFS) by the government of India, and LIC will not issue new shares.
- The government owns 100% of LIC or more than 632.49 crore shares. Shares have a face value of Rs 10 each.
- On February 13, LIC filed draft papers with capital market regulator Sebi, paving the way for the country’s largest-ever initial public offering.
- The IPO of over 31.6 crore shares, representing a 5% government stake.
- Employees and policyholders of the insurance behemoth would receive a discount on the starting price.
- According to the proposed red herring prospectus (DRHP), LIC’s embedded value, which is a measure of the consolidated shareholders’ value in an insurance company, has been estimated by international actuarial firm Milliman Advisors to be around Rs 5.4 lakh crore as of September 30, 2021.
- Although the DRHP does not disclose the LIC’s market valuation, according to industry standards, it would be approximately three times the embedded value, or approximately Rs 16 lakh crore.
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